How Can Cryptocurrencies Impact Small Businesses?

In October 2020, PayPal announced that the company would begin to roll out the acceptance of cryptocurrency. The company serves more than 27 million businesses worldwide, and the acceptance of an alternative payment mechanism was considered a big deal. This announcement followed several announcements from payment processing company Square who reported that it would also further roll out its cryptocurrencies. Crypto trading began to gain traction in the wake of the PayPal report, helping to buoy many more prominent cryptocurrencies such as Bitcoin and Ether.

How Do Cryptocurrencies Help Small Businesses?

Cryptocurrencies provide vendors and consumers with an alternative to traditional payment processing. For small businesses, this option offers cost-effective transfers and their safety and security. The transfer of funds between a customer and a firm requires public and private keys, which are addresses where crypto trading can take place. This process enables transparency for crypto trading and helps deter fraud.

Additionally, as crypto trading becomes more accepted throughout the vendor marketplace, it could drive further customers to adopt these payment methods. Ultimately, it small businesses will eventually need to consider introducing cryptos as a payment method to keep up.

Payment Processing is the Most Practical Start

There are several ways that cryptocurrencies could be able to impact small businesses. The most common way is through payment processing. Cryptocurrencies such as Bitcoin and Litecoin are processing tokens that allow consumers to pay vendors for a good or service. An increasing number of large corporations accept forms of cryptocurrency, including Microsoft and Amazon. Their acceptance of crypto trading has added credibility, enticing smaller businesses to begin receiving Bitcoin and Litecoin as payment. 

The vendors, in most instances, do not drive this process. The demand is coming from the consumers. Several consumers are requesting that businesses allow them to trade crypto prices or to make payments on products. Currency conversion platforms can facilitate the process and help convert cryptocurrency assets into sovereign currencies.  

The Pros and Cons of Crypto Acceptance for Small Businesses

There are several reasons why the demand for cryptos is increasing amongst small businesses. Most of the focus from the customer standpoint is the prevention of fraud. The cryptocurrency payment process through the blockchain is supposed to be secure, allowing vendors and consumers to transact without a breach. 

This scenario exists because blockchain keeps all the records of prior transactions and copies those records to multiple proofs of transaction entities across a worldwide network.  Additionally, this process helps facilitate the verification process as it deters potential hackers. A hacker would need to know all the devices storing every transaction record and access it if they wanted to alter them without the change going unnoticed. Crypto trading that works on a blockchain offers transaction security, anonymity, and transactions without third-party verification. 

Crypto prices can be volatile, which can cause concern for many vendors. The volatility of crypto trading as CFDs can create a scenario where a vendor accepts cryptocurrencies, but their sovereign balances are whipsawing based on the market. For example, if a company agrees to accept a Bitcoin when it’s trading at $35,000 to purchase a car and by the end of the day Bitcoin is trading at $33,000, the vendor will have a $2,000 market to market loss. Many vendors might use a payment mechanism that immediately converts their cryptocurrency to sovereign currency to avoid this situation. Alternatively, they might keep the cryptocurrency investment. Vendors need to determine whether the acceptance of cryptocurrency is worth the risk. 

Cryptocurrency Transactions are Final

Each transaction is a final transaction and cannot be reversed. To change the transaction, you will have to perform a new transaction that will also be recorded.  When you make a cryptocurrency transaction, the process is similar to cash. You will not be asked for identification to provide proof that a credit card is yours. This process makes it difficult for a vendor to share or sell your information to marketers. From the vendor standpoint, you will not provide a refund to a customer; you will need to give a new transaction.

The Bottom Line

The upshot is that cryptocurrency transactions are increasing as small businesses see the rising demand for these payment mechanisms. Consumers are interested in using a blockchain-oriented product that significantly reduces the potential for fraud. The ability to make a payment without giving a vendor a slew of information is also desirable. One of the downsides of crypto acceptance by a small business is the volatility associated with cryptocurrencies. You will need to have a plan in place to determine how you will handle each transaction. You can either hold cryptocurrencies or convert them into sovereign currencies immediately to avoid the volatility in their value.